(HT)
India’s central bank will meet lenders next week to talk potential changes to the way it manages funds in the financial system, people familiar with the matter said, as it seeks to ensure rate decisions are effectively passed to the broader economy.
Senior Reserve Bank of India (RBI) officials, including recently-appointed Deputy Governor Poonam Gupta, will meet bank executives on May 21, the people said, asking not to be identified as discussions are private.
The meeting comes ahead of the RBI’s policy statement on June 6 and follows its aggressive measures to swing a record cash deficit to a surplus. The review highlights the RBI’s efforts to sharpen the tools in its policy kit at a time when it is lowering borrowing costs to spur growth.
The RBI will likely discuss the continuation of the overnight weighted average call rate as the target of its liquidity operations and monetary policy, the people said.
That rate at which banks borrow and lend unsecured funds to each other is supposed to line up with the RBI’s policy rate so that market borrowing costs mirror its monetary actions. This link has often been broken in recent years.
The central bank has proposed a new benchmark — the Secured Overnight Rupee Rate — which may eventually replace the Mumbai Interbank Outright Rate for pricing interest rate derivatives.
The authority may also discuss whether to use fixed-rate or variable-rate repurchase operations to peg the market borrowing rate with the policy rate, the people said. It discontinued daily fixed-rate cash windows in 2020.
The RBI didn’t respond to an email seeking comments.
The meeting is also likely to discuss potential tweaks to the amount of funds banks need to set aside on a daily basis for their cash reserve requirement, the people said. At present, banks must maintain 90% of the cash reserve requirement on a daily basis.
